In western capital markets there is a widely-held view that a deteriorating economic outlook will provoke a run from commodities into cash, so those who regard gold as only a commodity are bearish but have almost certainly already sold. The four billion Asians who own most of the world’s gold take a different view, having learned through experience that their currencies collapse instead.
This sums up the opposing forces behind the gold price. In futures markets the bets are in favour of shorting, while the Asians continue to buy physical. And this is why yet again, the London gold forward rate (GOFO) went sharply into backwardation last Friday when futures markets forced prices lower.
Prices for gold and silver sold off last week, with gold falling from a high of $1331 to a low of $1286 on Tuesday, and silver went as low as $19.22 at one point.
Silver’s open interest on Comex has been building and is now close to all-time highs at over 164,000 contracts. When the tide turns, silver should be the star performer.